The News on News

06/24/2005 12:00 am EST

Focus:

Richard Band

Editor, Profitable Investing

"Not all of today’s best bargains are obvious; some take some digging," says value expert Richard Band. "You have to pore over balance sheets and SEC filings in search of undervalued assets." Here, he highlights the news on News Corp., a stock he calls a "buried treasure."

"These days, many investors are chasing overpriced commodity stocks and dicey, untested technology issues. What a pity, and what an irony, because right under our noses, a parade of healthy, growing, value-priced companies is marching by. You don’t have to overpay for growth. Rather, look for the sweet spot in today’s market—stocks with solid growth prospects at a price that lets you ring up profits considerably faster than the sluggish market averages. Part of the secret is to uncover 'hidden assets' that management can quickly mobilize to boost shareholder value.

"One example of 'buried treasure' that I’m adding to our buy list is Rupert Murdoch’s News Corp. (NWS.A NYSE). This media powerhouse, founded by Murdoch in 1949, owns a string of big city newspapers, including the New York Post and the Times of London. It also controls book publisher HarperCollins. However, print publishing isn’t where the excitement is. (In most industrialized countries, print is a mature business.) News Corp. is expanding rapidly in electronic media. Jewels in Murdoch’s crown include the Fox entertainment group (movies, TV stations, and cable programming) plus minority interests in satellite-broadcasting systems on five continents, such as DIRECTV in the U.S. and BSkyB in Europe.

"Where’s the hidden value? If you look at News Corp. solely on a price-earnings basis, you won’t find it. At 17 times this calendar year’s projected earnings, the stock seems like an ordinary, run-of-the-mill large company. But that’s because satellite TV, a relatively young business, is still ramping up and losing money. In fiscal 2006, which begins July 1, the red ink should start to dry up. As satellite moves toward profitability, the value of this stake (mostly in the form of publicly traded shares) could skyrocket over the next few years.

"So you’ve got two scenarios. If satellite takes off, you make a fistful of cash. If the technology fizzles, News Corp. still has a clutch of dependable old-media assets with earnings to support the stock. Heads you win; tails you don’t lose. That is my kind of odds. Buy NWS.A at $17 or less. We’ll carry it in the model portfolio under World-Class Franchises. I favor the Class A stock because it’s more liquid than the Class B and (through June 2007) pays a higher dividend."

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